Texas Estate Planning

Is Putting a Home in Trust a Good Estate Planning Move?

A typical estate at death will include a personal residence. It’s common for a large estate to also include a vacation home, or family retreat. Leaving real property in trust is common.

Estate plans that include a revocable trust will fund the trust by a pour-over, says Kiplinger’s recent article entitled “Should You Own Your Home in Your Trust?”

A settlor (the person establishing a trust) often will title their home to the revocable trust, which becomes irrevocable at death.

Another option is a Qualified Personal Residence Trust, which is irrevocable, to gift a valuable home to a trust for the settlor’s children. With a QPRT, the house is passed over a term of years while the original owner continues to live there, so the gift passes with little or no gift or estate tax.

Some trusts arising from a decedent estate will hold the home belonging to the settlor without any instructions for its disposal or retention. Outside of very large trusts, a requirement to actually purchase homes for beneficiaries in the trust is far less common.

It is more common in a large trust to have terms that let the trustee buy a home for a beneficiary outside the trust or keep the settlor’s home in the trust for a beneficiary’s use, including purchasing a replacement home when requested.

The trustee will hopefully propose a plan that will satisfy the beneficiary without undue risk to the trust estate or exceeding the trustee’s powers. The most relevant considerations for homeownership in a trust are:

• The competing needs of other trust beneficiaries
• The purchase price and costs of maintaining the home
• The size of the trust as compared to those costs
• Other sources of income and resources available to the beneficiary; and
• The interests of the remaindermen (beneficiaries who will take from the trust when the current beneficiaries’ interests terminate).

The terms of the trust may require the trustee to ignore some of these considerations.

Each situation requires a number of decisions that could expose the trustee to a charge that it has acted imprudently.

Those who want to create a trust should work with an experienced estate planning attorney to avoid any issues.

Reference: Kiplinger (Feb. 8, 2022) “Should You Own Your Home in Your Trust?”

How to Shop for a Life Insurance Policy

Life expectancy is important because life insurers take on a financial risk by covering you. The higher the chance of an insurer having to pay out your policy, the more you’ll pay and the more difficult it will be to get coverage.

Market Watch’s recent article entitled“5 reasons you might have to pay more for life insurance” says that if you fall into one of the following groups, you may be deemed a high risk to insure.

1. You have a pre-existing health condition. This is something such as cancer, diabetes and any type of autoimmune disorder. Morbid obesity is a big risk. However, if you’re managing your pre-existing condition well, insurers will consider that when setting rates. That’s because the more controlled your health risk is, the more favorable it is for your own mortality. That is good for everybody involved. It is a “win-win.”
2. You work a dangerous job. If you work in a risky workplace, you’ll be treated differently from someone with a desk job. The list of “dangerous” jobs is based on specialized tasks. However, if leave your hazardous job, you can ask your insurer to re-evaluate your rates.
3. You’re a daredevil If you enjoy the thrill of extreme sports, like car racing, piloting, skydiving, scuba diving, or mountain climbing, you’ll likely have higher life insurance rates. Insurers will consider the level of risk you’re taking and how frequently you participate in these activities.
4. You’re receiving drug or alcohol treatment. The type of drug and the length of time you’ve been clean play a part. Insurance companies look carefully at relapse rates, as well as the likelihood of contracting diseases through drug use, like hepatitis C.
5. You have a recent DUI. A DUI is more than a blip on your driving record. It can also impact your ability to get low-cost life insurance. If you received a DUI in the past year, you could expect a higher premium when you apply for life insurance. If you have multiple DUIs over five years ago, you’ll likely pay more than twice as much for coverage as someone with a clean driving record. However, the insurance company may not penalize you for just one DUI that happened five or more years ago.

You can increase your chances of approval by working with a life insurance broker or independent agent. They partner with a number of life insurance companies, so they can help you navigate your options.

Reference: Market Watch (Jan. 25, 2022) “5 reasons you might have to pay more for life insurance”

Does ‘Gray Divorce’ Fit into Estate Planning?

According to the Pew Research Center, the divorce rate has more than doubled for people over 50 since the 1990s. The Pandemic is also adding to the uptick, says AARP’s recent article entitled “Getting Divorced? It’s Time to Update Your Caregiving Plan.”

A divorce can be financially draining. Moreover, later-in-life divorces frequently impact women’s finances more than men’s. That is because in addition to depressed earnings from time spent out of the workforce raising children, women find themselves more financially vulnerable post-divorce and more likely to serve as caregivers again in the future. Even so, for partners of all genders, it is important to consider the longer-term financial outlook, not just the financial situation you’re in when you are actually dissolving the marriage.

You and your spouse will be dividing assets and liabilities and the responsibilities regarding spousal support. How one of you will live if the other gets sick or passes away should also be part of this conversation.

Consider where you’ll need to make changes. One may be removing your spouse from beneficiary designations on all your accounts. (In some states, this is automatic.) Your divorce agreement may also include buying life insurance or maintaining a trust or beneficiary designations for one another.

Create or update your estate plan immediately. You should also ask your estate planning attorney to review your marital agreement. They will have suggestions about how to align your estate plan with your divorce obligations. If you and your ex are co-parenting children, your estate plan should address who their guardians will be, if both biological parents pass away. It is also important to address who will manage any inheritance, if you don’t want your ex-spouse handling assets you may leave to your children.

Create your life care plan, which means naming health care proxies or surrogates (who will take care of your medical affairs, if you’re in need of caregiving), designating a financial power of attorney (who will take care of your finances and legal affairs), and naming a guardian for yourself if you’re incapacitated.

Consider the way in which your divorce will impact your children and extended family if you need caregiving. At a minimum, agree between yourselves what level of contact you can manage and, if you share children and loved ones, know that your lives will cross along the way.

While your marriage may not last, the connections will, so make a wise plan. 

Reference: AARP (Jan. 25, 2022) “Getting Divorced? It’s Time to Update Your Caregiving Plan”

Should I have Revocable Living Trust in Estate Plan?

Kiplinger’s recent article entitled “What Assets Should Be Included in Your Trust?” says that a revocable living trust is a document that’s created to protect your assets during your lifetime. It also creates a way to seamlessly pass your assets at your death. The biggest benefit of creating a trust is avoiding probate. Placing your important assets in a trust can give you peace of mind knowing assets will be passed onto the beneficiary you designate, under the conditions you choose and without first undergoing a drawn-out probate process.

Many people think that once they sign the trust documents at their attorney’s office, they’re good to go. Setting up a trust is just half of the job. For a revocable living trust to take effect, it should be funded by transferring assets into the trust. You can fund a living trust with real estate, financial accounts, life insurance, annuity certificates, personal property, business interests and other assets.

People often ask if it’s wise to place their house in a trust. Considering that your home is potentially one of your largest assets, living trusts can be especially beneficial. A trust can transfer real estate quickly. They also help avoid the hassle of separate probate proceedings for land, commercial properties and homes that are owned out of state or held in different counties. However, property with a mortgage must be retitled in the name of the trust. Some lenders may be reluctant to do this.

There are several types of financial assets that can be owned by a trust, here are some examples:

• Bonds
• Stock certificates
• Shareholders’ stock from closely-held corporations
• Non-retirement brokerage and mutual fund accounts
• Money market accounts
• Cash
• Checking and savings accounts
• Annuities
• Certificates of deposit (CD); and
• Safe deposit boxes.

While creating a trust can seem to be costly and complex, it can make the inheritance process much easier on your beneficiaries. To ensure your trust performs as it is intended, work with an experienced estate planning attorney.

Reference: Kiplinger (Jan. 16, 2022) “What Assets Should Be Included in Your Trust?”

Why Did VA Approve Hundreds of Ineligible Doctors?

Lawmakers are demanding reforms in how the Department of Veterans Affairs screens outside doctors for patient medical care, after a recent Government Accountability Office review found the department’s referral list contains about 1,600 providers who are ineligible to treat veterans, including 601 who are dead, reports Military Times’ recent article entitled “VA approved thousands of ineligible doctors — now lawmakers want changes.”

“While [the list] represents a small percentage of the Veterans Community Care Program’s roughly 1.2 million active providers, they represent potential threats to veteran health and safety and risks for financial fraud,” a group of representatives wrote in a letter to VA health officials. “We urge VA to review all ineligible providers identified by GAO and, as appropriate, deactivate them in the Community Care Network so veterans are not referred to them for care.”

The request was authored by Representatives Chris Pappas, D-N.H.; Tracey Mann, R-Kansas; Julia Brownley, D-Calif.; and Jack Bergman, R-Mich. The letter comes amid increasing scrutiny of VA’s Community Care Program, which allows veterans to receive care from private-sector physicians but have the appointments paid for with taxpayer money.

The program has been a key part of VA health care for decades. However, recently conservatives have pushed to expand it dramatically amid questions about long wait times and specialist shortages at some VA medical centers. Critics of that plan have said that department officials need to improve their oversight of Community Care providers first and make sure they’re meeting the same medical standards and expectations of VA physicians. The latest GAO review appears to support that argument, saying that VA officials failed to exclude a small but significant number of ineligible providers from the program.

Along with 601 deceased physicians, the list included 216 active providers with revoked medical licenses and 796 who have surrendered their medical licenses in response to an investigation.

One provider had a nursing license expire in 2016, was arrested for assault in 2018 and convicted of patient abuse in 2019. Nonetheless, this nurse was still added to the Community Care list later in 2019, a move that VA officials have now said was a clerical error.

“The vulnerabilities we identified … indicate that veterans may potentially be at risk of receiving care from unqualified providers,” the GAO report states.

VA officials in response said that they will enact reforms with improvements in the periodic checks of provider credentials.

Reference: Military Times (Jan. 18, 2022) “VA approved thousands of ineligible doctors — now lawmakers want changes”

Can My Ex Get Some of My Estate?

For many people, their will is their final communication to the world.

A will states how their property should be distributed upon their death. CNBC’s recent article entitled “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes” says that depending on how you plan, it may have a few some surprises for those who are close to you.

There are a couple of situations where you could inadvertently leave money to people you no longer intend as heirs, much to the surprise of other heirs.

An ex-spouse could get some of your money when you die, if you do not update your beneficiaries under a retirement plan.

Divorce does not automatically change a beneficiary designation, unless the divorce decree includes a stipulation to change it. IRAs are the same, so it is not uncommon for an IRA owner to die without having changed the beneficiary designation after a divorce. It’s usually just a simple oversight.

However, most state laws provide that once a married couple is divorced, ex-spouses lose all property rights.

However, pensions are governed by federal law, formally known as ERISA or the Employee Retirement Income Security Act of 1974. As a result, state rules do not apply.

Pensions are not the only accounts that people tend to forget to update. Bank account beneficiary designations are often hard to find, and circumstances may change from when you first set them up.

While it may be tempting to disinherit someone to whom you are no longer close, it can be a bad idea. That is because it can invite all kinds of issues, like a will challenge.

There is always the chance you may reconcile, even on your death bed, at which point it will be too late to update your will and estate plan. Therefore, leave something less to them and do not say anything bad.

To ensure your wishes are carried out the way you want, work with an experienced estate planning attorney.

Reference: CNBC (Jan. 9, 2022) “Your ex-spouse could inherit your money. How to avoid this and other estate-planning mistakes”

What Does ‘Community Property’ Mean?

Community property refers to property acquired by one or both spouses during the marriage, provided the spouses live in a state that has a community property framework, says The Milwaukee Business Journal’s recent article entitled “Is what’s mine, ours? Understanding community property.”

There are not many community property states. That is because most states have adopted common law of property laws. The only community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Several other states’ laws allow residents to “opt-in” to a community property regime. These states are Alaska, Tennessee, Kentucky and Florida.

While community property laws in the nine community property states differ in a number of ways, they all classify property either as community property—which is owned one-half by each spouse, or separate property, that which is solely owned by one spouse.

For example, in Wisconsin, community property is referred to as “marital property” and separate property is referred to as “individual property.” Property acquired prior to the marriage and gifts/inheritances are typically classified as separate property. Any property acquired during the marriage is deemed to be community property. In a common law property regime, property is owned by the spouse whose name is on the title.

A basic feature of a community property legal framework is that title does not indicate ownership. Therefore, if a married couple deposits income earned during their marriage into an account titled only in the husband’s name, it is still owned one-half by the wife despite the fact that her name is not on the account.

Whether assets are classified as community property or separate property can have a significant effect on a couple’s life, including issues in estate planning, income and estate tax planning and creditors’ rights.

As far as estate planning, each spouse can only dispose of one-half of community property at his or her death. Community property also gets a “double step up in basis,” which means that built-in appreciation on community property is eliminated at both spouse’s deaths. Finally, the classification of an asset as community or separate property can affect whether a creditor of one spouse can recover from that asset.

Ask an experienced estate planning attorney about how community property laws may affect your financial and estate planning.

Reference: Milwaukee Business Journal (Jan. 1, 2022) “Is what’s mine, ours? Understanding community property”

When Should I Think About Business Succession?

The pandemic has made many business owners rethink their business succession and retirement planning. Insurance News Net’s recent article entitled “Succession Planning For Business Owners: More Important Than Ever” reports that according to PwC’s 2021 US Family Business Survey, only a third of US family businesses have a robust, documented and communicated succession plan in place.

If you wait too long, you may not have the right people in place to run the business. It also restricts the tax planning options for the business and your personal estate. Either error can cause a business to fail, when it passes from one generation to the next.

An exit that is too sudden or without direction can leave a vacuum at the top and damage relationships with existing clients and customers. With clear objectives, a sense of urgency and an experienced estate planning attorney, you can help ensure that your business, and your future, are secure.

There are a number of areas of transition that should be addressed:

1. Founder Transition: Determine how long you plan to stay with the business, and what your retirement plans are;
2. Family Transition: If you plan to leave your business to your children, determine the way in which the roles and power relationships will change;
3. Business Transition: How will the company’s operations and customer relations be maintained through other transitions;
4. Management Transition: Decide who will make up the new management team, such as family, non-family, or both, and how new leadership will be evaluated. You should also map out the schedule for transferring control of day to day decisions;
5. Ownership Transition: Determine how ownership is to be transferred; and
6. Estate Transition: see how you will coordinate your estate plan to ensure that the other transitions above occur as planned.

Many of these transitions will be accomplished through formal documentation, such as an operating agreement, buy-sell agreements and trusts. Sit down with an attorney soon rather than later to sort this out.

Reference: Insurance News Net (December 30, 2021) “Succession Planning For Business Owners: More Important Than Ever”

Veterans Affairs Review Shows That Many Lose Benefits

The VA’s proposed reorganization would have resulted in 90% of post-9/11 veterans losing their caregivers benefits. That is much higher than the 33% estimate VA officials predicted last fall when they began eligibility reassessments for the roughly 20,000 “legacy” participants of the Program of Comprehensive Assistance for Family Caregivers.

Military Times’ recent article entitled “VA’s caregiver review would’ve booted 90% of young vets from program” says this also confirms advocates’ complaints in recent months that the assessments — done purportedly to bring consistency and order to the program — were being done in a manner that would have dramatically scaled back assistance to combat-wounded veterans who need near-constant at-home care.

VA Deputy Secretary Donald Remy recently said that the department would stop all dismissals from the program until officials can fully review changes made to the eligibility criteria in recent years. Roughly 33,000 veterans are currently enrolled in the program, designed to support and compensate full-time caregivers providing at-home assistance to severely wounded veterans.

The stipends vary based on where veterans live. These benefits are typically about $3,000 a month for the most severely wounded individuals and $1,800 for others in need of 24/7 care.

About 20,000 of the participants are post-9/11 veterans who were admitted to the program before October 2020, when it started to include Vietnam-era veterans. Officials also modified eligibility guidelines, altering definitions and tests for how to determine which veterans were “unable to self-sustain in the community.” As a result, last fall, the VA announced it would review those older participants to see if they still qualified for benefits. About 70% of those cases have been reassessed, with the 90% rejection rate.

Those newly ineligible families did not see their stipends end right away. However, they were told to expect that the financial aid would end by 2023. Those plans are now on hold. Without this, the department was on pace to dismiss approximately 18,000 individuals from the program—cutting its participant total in half by early next year.

VA officials have promised to meet with advocacy groups and other community activists next month to develop new eligibility criteria for the program. They also said they do not think the recent problems will delay expansion of the program this fall. Only veterans who served before 1976 or after 2001 are currently eligible for the benefit. However, it is scheduled to be open to all veterans starting this October.

Reference: Military Times (March 25, 2022) “VA’s caregiver review would’ve booted 90% of young vets from program”

Veterans Affairs Review Shows That Many Lose Benefits

The VA’s proposed reorganization would have resulted in 90% of post-9/11 veterans losing their caregivers benefits. That is much higher than the 33% estimate VA officials predicted last fall when they began eligibility reassessments for the roughly 20,000 “legacy” participants of the Program of Comprehensive Assistance for Family Caregivers.

Military Times’ recent article entitled “VA’s caregiver review would’ve booted 90% of young vets from program” says this also confirms advocates’ complaints in recent months that the assessments — done purportedly to bring consistency and order to the program — were being done in a manner that would have dramatically scaled back assistance to combat-wounded veterans who need near-constant at-home care.

VA Deputy Secretary Donald Remy recently said that the department would stop all dismissals from the program until officials can fully review changes made to the eligibility criteria in recent years. Roughly 33,000 veterans are currently enrolled in the program, designed to support and compensate full-time caregivers providing at-home assistance to severely wounded veterans.

The stipends vary based on where veterans live. These benefits are typically about $3,000 a month for the most severely wounded individuals and $1,800 for others in need of 24/7 care.

About 20,000 of the participants are post-9/11 veterans who were admitted to the program before October 2020, when it started to include Vietnam-era veterans. Officials also modified eligibility guidelines, altering definitions and tests for how to determine which veterans were “unable to self-sustain in the community.” As a result, last fall, the VA announced it would review those older participants to see if they still qualified for benefits. About 70% of those cases have been reassessed, with the 90% rejection rate.

Those newly ineligible families did not see their stipends end right away. However, they were told to expect that the financial aid would end by 2023. Those plans are now on hold. Without this, the department was on pace to dismiss approximately 18,000 individuals from the program—cutting its participant total in half by early next year.

VA officials have promised to meet with advocacy groups and other community activists next month to develop new eligibility criteria for the program. They also said they do not think the recent problems will delay expansion of the program this fall. Only veterans who served before 1976 or after 2001 are currently eligible for the benefit. However, it is scheduled to be open to all veterans starting this October.

Reference: Military Times (March 25, 2022) “VA’s caregiver review would’ve booted 90% of young vets from program”